Which of the following is one of the Open Market Operations by the Reserve Bank of India?

Question

Question

This question was previously asked in

SSC CGL 2022 Tier-I Official Paper (Held On : 12 Dec 2022 Shift 1)

Answer 1

The correct answer is Buying and selling of bonds issued by the Government in the open market.

Key Points

Open Market Operations (OMO) is conducted by the Reserve Bank of India (RBI) for the sale or purchase of government securities (g-secs), financial assets or bonds issued by the government to the banks in order to adjust the money supply.
- The RBI does this to regulate the liquidity from the system and to infuse liquidity into the system.
There are two types of Open Market Operations: Outright Purchase and Repurchase Agreement. Hence option 1 is correct.
- Outright Purchase or PEMO is a permanent transaction which involves the RBI selling or purchasing securities in the open market to regulate the money supply.
- A Repurchase Agreement is a short-term agreement that involves the RBI buying and purchasing government securities after a specified date.

Additional Information

Open Market Operations are flexible and easily reversible thereby reducing the lags of monetary policy.
In 1948, the RBI mentioned the OMO purchase for the first time in its Annual Report.
Government securities or G-Secs are tradable instruments issued by central governments and state governments.
They are risk-free instruments and can be short-term like Treasury bills (T-bills) with a maturity of less than a year or long-term like government bonds with a maturity of a year or more than a year.